October 13, 2011 / 2:48 PM / 7 years ago

Gap bets on bolder classics for turnaround

NEW YORK (Reuters) - Gap Inc (GPS.N) is looking to simplify its clothing offerings, dab in more color, and de-clutter its North American namesake stores to help boost its languishing sales.

The namesake chain strayed from what it was best known for — high-quality jeans and casual clothes with an American aesthetic — and must go back to what initially made it successful, Art Peck, head of Gap North America, told Reuters in an exclusive interview at the company’s Manhattan design center.

“What’s expected of us is pretty clear,” Peck said on Wednesday, the eve of the retailer’s investor day. “I think it’s been us who’ve kind of wandered around.”

Peck, 56, oversees the Gap stores in North America, but not the company’s Old Navy and Banana Republic chains.

He replaced Marka Hansen in February, when Chief Executive Glenn Murphy shook up senior management because of disappointing North American sales, particularly in womenswear.

As far as plans outside of North America, the company said on Thursday it will almost triple the number of Gap stores in greater China from roughly 15 at the end of this year to about 45 by the end of 2012, and will open Old Navy Stores in Japan in the next 18 months.

The company also backed its earnings expectations of $1.40- $1.50 a share for the full year, more or less in line with Wall Street estimates.

Industry experts and analysts say that Gap North America has confused shoppers in recent years by adding and pulling many lines of clothing. As a result, consumers did not know what they could find at the chain that they couldn’t get elsewhere.

“They were not able to hold on to that unique space they had,” said Wendy Liebmann, CEO of consultancy WSL Strategic Retail.

Peck intends to remedy that. Although he’s only been on the job for a few months, Gap’s shelves have begun to reflect his back-to-basics-with-a-twist approach, which will become even more noticeable during the upcoming holiday season.

He wants to build on the success of Gap’s 1969 brand of high-end jeans, which have become a hit with analysts and customers.

For example, Gap has added more color to its denim jeans and introduced skinny jean leggings with animal prints as well as colored corduroy leggings, which Peck said have sold well so far. There will also be more color in women’s jeans in its spring line, he added.

Gap’s more formal, sober clothes for women fell flat, Peck said, proving that the chain should stick to what it does best.

The Body Fit line of yoga and casual clothing for women, introduced last year in a direct challenge to Lululemon Athletica LLL.TO is doing well, he said.

Gap shares were trading up 1 percent at $18.06 Thursday morning on the New York Stock Exchange.


Peck isn’t crazy about how Gap displays clothes on the sales floor. So another change he is implementing is to stack fewer items on top of one another to reduce the clutter that makes shelves look like discount bins and use more elegant shelving to give the clothes a more sophisticated air.

“We have far better product in our stores than we’re getting paid for,” Peck said.

An avid runner and cyclist, Peck was hired in 2005 from the Boston Consulting Group. He oversaw corporate strategy before being tapped three years later to head the outlet unit, which operates stores under the Gap and Banana Republic brands.

Gap’s sales in the United States and Canada have languished for years, a decline from the chain’s heyday in the 1980s and 1990s as the go-to retailer for casual American style.

Sales at North American stores open at least a year fell by at least 5 percent in six of the last seven years and have kept dropping this year. In September, they slipped 4 percent.

The company has faced competition from specialty retailers like Abercrombie & Fitch (ANF.N) and new rival Uniqlo, owned by Japan’s Fast Retailing (9983.T). That chain intends to have about 200 U.S. stores by 2020, up from three.

Gap currently operates about 890 namesake stores in North America, not including its outlet locations, but plans to lower that to 700 by the end of 2013. Gap North America represents about a quarter of the company’s sales.

The chain frequently offers deep discounts and will continue to do so this holiday season, but Peck said the focus needs to shift away from price.

“We need to start talking about the merits of the product versus the merits of the deal,” he said.

Having clothes that shoppers actually want is the best way to reduce the need for the discounting that has dented Gap sales and margins.

“If you have compelling merchandise, people will buy it whether it’s on sale or not,” said KeyBanc Capital Markets analyst Edward Yruma.

Peck said Gap must lure a younger generation of shoppers, which means selling clothes that stay true to its image, but aren’t just the same old clothes.

“Predictability ultimately means you fade into the background,” he said.

Reporting by Phil Wahba in New York and Nivedita Bhattacharjee in Bangalore, editing by Bernard Orr, Saumyadeb Chakrabarty

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